Rents hit all-time highs amid job growth and low vacancy rates

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Bobbo and Tracy Byrnes have been notified that their rent will increase by $600 a month to $2,050 on June 1. The couple has lived at Huntington Manor Apartments for over 17 years, the only home they have lived in since they moved to California. Residents all over the complex are getting similar rent-hike notices and others are being told they’ll get similar notices in the future, and “it’s going to be ugly.” The Byrnes were photographed in Huntington Beach on Wednesday, April 12, 2017.

Some residents at the Huntington Manor Apartments in Huntington Beach got a huge surprise at the start of the month.

Notices affixed to their front doors courteously thanked them for renting in the neat, gated, well- landscaped, pet-friendly complex. Then the notices added, effective June 1, their rent would go up by $400 to $600 a month, depending on whether they sign a lease. For one tenant, the rent hike was as high as $675 a month, a 47 percent increase.

The on-site manager has warned other tenants in the complex their rent hikes are coming in the months ahead, saying: “It’s going to be ugly.”

No explanation was given, and the manager declined to comment.

Some tenants said they’re renewing their leases since the new rents appear to be in line with prevailing rents at other complexes in the area. Others, like retirees Annette Noah and Frank Welch, say they’re moving because they can’t afford an expected increase to $1,845 a month from their current $1,400 — a 32 percent jump.

“It’s just too much money,” said Noah, 73, a retired nursing assistant.

Welch, 67, a former truck driver, said he and Noah can’t afford the new rent without going back to work, adding he doubts anyone would hire them “at our age.”

“It’s hard for folks,” Noah added. “There’s a lot of people who have been here a long time, and they don’t have a big bank account. Raise it up $50, I understand. To raise it all up at once, that’s a shock.”

All over Southern California, tenants are seeing rent hikes, although few are seeing huge jumps like those at Huntington Manor.

High demand and a limited supply of rentals continued to push rents to all-time highs during the first quarter of 2017, according to Reis Inc., a commercial real estate data firm.

The average asking rent for an Orange County apartment was $1,806 a month in the first quarter, up $49 a month or 2.6 percent from a year earlier, Reis reported.

In Los Angeles County, apartment rents averaged $1,778 a month, up $85 or 4 percent from the same quarter last year.

And the Inland Empire average was $1,278 a month, up $59 a month or 5.4 percent.

Those are averages for all apartments — studios through four-bedrooms.

The Inland Empire’s vacancy rate was the lowest in the region at 2.7 percent, Reis reported. But vacancy rates remained almost as low in Orange and Los Angeles counties, at 3.2 percent and 3.3 percent, respectively.

“My instinct is that the very high home prices and rents in the coastal counties are forcing families inland,” said Inland Empire economist John Husing. “Hence, the (Inland Empire’s) low vacancy levels and more rapidly rising rents.”

In the top 10

Rents in the region have gone up on a year-over-year basis for at least 22 consecutive quarters, Reis figures show.

It could be worse. Asking rents averaged $3,471 a month in the New York metropolitan area. Apartment rents averaged $2,946 a month in San Francisco, $2,496 a month in the Silicon Valley and $2,134 in the East Bay.

Still, Orange and Los Angeles counties had the ninth- and 10th-highest asking rents among 79 U.S. metro areas measured by Reis last quarter. The Inland Empire ranked 22nd out of 79 metro areas.

Steve Gjerstad, a business school professor at Chapman University, said persistently rising rents likely are tied to job and income growth.

For example, average earnings increased by about 10 percent to 11 percent in the region from 2012 to 2015, U.S. Census data show. Jobs increased by 12 percent to 13 percent in Los Angeles and Orange counties and by a whopping 22 percent in the Inland Empire from 2011 to 2016.

“There’s an increase in earnings and an increase in employment, and only very recently an increase in housing stock,” Gjerstad said. “The combination of these factors probably put some upward pressure on housing prices.”

Bidding wars

Most tenants feel that pinch when their leases come up for renewals, said Jane Lewis, property management director for Seven Gables Real Estate.

She estimated that rent increases average 5 percent to 7 percent during renewals. Only one in five tenants opt to move out instead of renewing the lease. Landlords typically raise the rents even higher, around 10 percent, for new tenants.

Because vacancies are so low, more tenants come prepared, with credit reports, bank statements and paycheck stubs in hand, because they know there’s going to be competition, Lewis said. Some tenants are offering to pay $25 to $50 a month over the asking rent or to sign a longer lease to rise above the competition.

“The rental market and real estate, in general, is just going 100 mph,” she said.

There is some good news for renters in Orange and Los Angeles counties.

The pace of rent hikes percentage-wise is the lowest it’s been in two years in those two counties.

Nicholas Dunlap, president of the Apartment Association of Orange County, believes a host of new construction is starting to slow rent increases as new apartments open up.

For example, about 5,200 new units are expected to be completed this year in Orange County, with 3,000 more built in 2018, according to CoStar. Los Angeles County is expected to add about 10,300 new units this year and 13,000 in 2018.

“We’ll still continue to see rent growth, but I think it will be more measured,” Dunlap said.

That extra 23,300 units will help somewhat in Los Angeles County, which has been hampered by too few units and too much demand, said Fred Sutton, director of government affairs for the Apartment Association of Greater Los Angeles, a landlord group.

“Without a doubt, people are strained throughout California, not just in L.A. County,” Sutton said of renters.

The solution is to build more housing, but Los Angeles builders face some of the toughest regulatory constraints in the region and landlords in such cities as Los Angeles and Santa Monica are limited by rent control.

“Some landlords have not raised rents in 10 years,” Sutton said.

Creating a hardship

There’s no rent control in Orange County, and some tenants complain they’re having trouble making ends meet because of rising rents.

Readers calling the Register recently included a Brea woman who said she’s on the verge of becoming homeless because she can’t afford her rent. An Aliso Viejo renter said she wrote her landlord, pleading for a smaller rent hike because it will create a hardship for her.

Apartment managers pulled out a spreadsheet showing her rent is on the rise throughout her community, she said.

Back at the 78-unit Huntington Manor, a middle-aged woman considered moving in with her mother after getting a notice her rent will rise from $1,275 to $1,675 in June. Then, her son volunteered to take on extra work, so she’s renewing her lease and staying.

Musicians Bobba and Tracy Byrnes, who have lived at 69-year-old complex for 17 years, are trying to negotiate a smaller increase after discovering their two-bedroom apartment is 200 square feet smaller than advertised.

The couple, who perform as The Fallen Stars, said their rent of $1,450 a month is set to increase to $2,050 if they continue to rent month to month, which is what they had planned.

“We’ve been here 17 years, we’ve never been late on our rent, never had any complaints. It’s a kick in the teeth,” Bobba Byrnes said.

Tracy Byrnes complained that management appears to be comparing their units to complexes with amenities Huntington Manor lacks: a pool, a gym, garbage disposals and air conditioning.

“We’ve always been very happy here. It’s been a nice place to live,” Tracy Byrnes said. “It feels like they’re breaking up the community because all the people who have been here long term are going to have to leave.”

For more than a decade, Jeff Collins has followed housing and real estate, covering market booms and busts and all aspects of the real estate industry. He has been tracking rents and home prices, and has explored solutions to critical problems such as Southern California’s housing shortage and affordability crisis. Before joining the Orange County Register in 1990, he covered a wide range of topics for daily newspapers in Kansas, El Paso and Dallas. A Southern California native, he studied at UC Santa Barbara and UC Irvine. He later earned a master’s degree from the USC School of Journalism.